More government money won’t close urban-rural divide

Any attempt to close the widening gap between urban and rural areas by increasing public-works spending and subsidies from the central government will only cover up the root cause of the problem, Yoshitsugu Hayashi, an economics professor at Kwansei Gakuin University told the Sept. 18 symposium.

Instead, policy emphasis should be placed on making the rural areas more attractive on their own, Hayashi said, adding that the introduction of the “doshu-sei” system of reorganizing Japan into several regional blocs will provide a better environment for such efforts.

The increasing disparity between economically successful urban areas and the less prosperous rural regions has come into focus in the last several years. It is often mentioned as one of the negative effects of the structural reforms pursued by the administration of former Prime Minister Junichiro Koizumi.

However, Hayashi noted that the problem of the urban-rural gap in itself is nothing new in Japan, noting that policymakers have for decades advocated a “regionally balanced” economic development as a priority issue.

Earlier, the gap was contained as the central government redistributed the nation’s income to the rural areas in the form of public-works projects, tax grants and subsidies, and it simply came to the surface recently as the Koizumi reforms cut back on public-works spending and subsidies, the professor said.

Hayashi agreed that the urban-rural gap is an urgent concern for Japan.

Today, rural Japan is experiencing a “negative spiral” in which less competitive areas losing population and industries face tax revenue declines, making local governments fiscally weaker and less capable of making efforts to make the areas more attractive. Unless the situation is reversed, rural Japan will become more exhausted and economic resources will concentrate further in big cities like Tokyo, he noted.

This problem is all the more alarming given demographic forecasts showing that depopulation in rural areas would accelerate to a degree that threatens their future, he said. According to the National Institute of Population and Social Security Research, population in some prefectures like Akita, Aomori, Iwate, Wakayama, Yamaguchi and Kochi is forecast to decline by 20 percent or more between 2005 and 2030 — more than twice as fast as the national average of a 9.8 percent fall.

But Hayashi warned that closing the gap itself should not become a policy target.

The gap will certainly narrow if the central government spends more on public works and subsidies, but history shows that such a redistribution policy will not only fail to address the fundamental problem of rural areas but keep them dependent on assistance from the national authorities, he said.

What needs to be done, the professor said, is to make the rural areas more attractive based on private sector-driven economic activities.

Policymakers must realize that economic activities in today’s globalized environment have become more geographically broad-based, meaning that prefectural governments are not suited for the job of regional economic policy management, Hayashi said.

One of the criticisms voiced toward the idea of the doshu-sei system is that establishing a larger regional bloc will only result in creating and enhancing the gap between rich and poor areas within the region, with much of the resources flowing into the biggest local city.

But such an argument is meaningless because the movement of business and people is determined by market mechanisms, not by administrative boundaries, Hayashi said.

Companies invest where the business climate is the best, and workers move to where better jobs and higher salaries are available. Resources in Kyushu concentrate in Fukuoka and those in Tohoku move to Sendai, the capital of Miyagi Prefecture, without being constrained by prefectural borders, he noted.

In pursuing broad-based regional economic development, it is important to build a core strategic city to maximize the benefit from accumulation of resources, but it is also essential to make sure that the economies of the hinterlands grow along with the core city, according to Hayashi.

In today’s rural Japan, populations in some of the core cities are increasing but only at the sacrifice of the hinterland economies around them, he said. To ensure that both would benefit from the region’s growth, there must be a broad-based infrastructure building and networking — which would be difficult under today’s prefecture-based administrative system, he added.

Hayashi also said that local administration under today’s challenges will require new types of human resources with expertise in regional affairs.

So far, the main functions of local governments have been to provide jobs for residents and give orders for public-works projects to local firms, “but they need to start serving as scenario writers, directors and even main actors in the effort to revitalize local economies,” the professor said.

Japan’s rural areas have long relied on public-works spending to keep their economies afloat, and what essentially mattered was the “quantity” of the spending as a pump-priming measure, Hayashi said.

What will matter in the future is the “quality” of the spending — or how much effect the public investment will have in generating economic activities or improving residents’ lives, he pointed out.

Since the needs of each area will differ, local officials with detailed knowledge of local affairs will be in a better position than central government bureaucrats to determine what types of investment will be most suited to revitalizing their areas, the professor said.

Regional development requires a comprehensive administration that oversees the development of the entire region, but today each of the central government ministries is directly linked to each of the cities, towns and villages in a region through distribution of subsidies, hampering the networking among municipalities, Hayashi said.

In a proposed division of labor under the doshu-sei system, central government interference in local affairs will be scaled back, paving the way for better communication and networking among municipalities within a region, he added.